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To build a successful business, a lot of pieces need to come together! Innovative ideas, sage legal advice and cost effective solutions helps solve your business puzzles. BRAD LEHRMAN 612-336-9317 | 800-752-4297 2000 IDS CENTER | 80 SOUTH EIGHTH STREET | MINNEAPOLIS, MN 55402 www.lommen.com
TO-DO LIST Don’t forget taxes when forecasting cash flow. If you’re profitable, generally speaking you’ll have to pay taxes, probably on a quarterly basis. That could be a problem because generating profits isn’t the same as generating cash. If you have to report on an accrual basis you could very well be profitable but not have the cash to pay. Again, plan for it. 1 2 3 Payroll taxes need to be withheld from paychecks, and accountants advise you never mess with that money. Business owners ignore that warning at their peril. MANAGING CASH Five tips for surviving a cash crunch Armed with a solid forecast, business owners can pinpoint in advance the time when they’ll run short of cash. Gather your management team and advisers together, and try these five things, experts recommend. Can you get a different form 1 of financing? For example, asset-based lenders will finance a larger percentage of receivables and inventory than a traditional bank will. (Banks typically finance 50 percent of inventory, while assetbased lenders may go as high as 75 percent, for example. Of course, that money will be more expensive.) Can you stretch out your 2 vendors? Calling vendors and asking if they’ll give you longer terms, 90 days instead of 30, for example, is a common tactic. They might want to see financial statements, and they might charge you more, but if you’re a good customer and they’ve been there themselves, they’ll likely do it. Can you shorten the time in 3 which you get paid? Offering a discount to those who pay early is a possibility, although that can set up a negative cycle, with less revenue coming in. You also have to be careful of the competition; if others allow more time to pay customers will migrate there. “A customer isn’t going to pay early unless you make it worth their while,” is how one local expert puts it. 4 Can you reduce inventory? A lot of companies carry more inventory than they need. ✓LEARN MORE clickable <strong>resource</strong>s Analyze the cost and benefit of a perpetual inventory system to track inventory. Companies that begin counting their inventory every month often see large savings in time; they usually can cut down on ordering, and they can make moves such as a promotion at a discount to sell slowmoving items. Can you turn to family and 5 friends? If you can’t borrow from commercial sources, borrow from family and friends to get through a crunch. Be sure to document all loans or other arrangements; no winging it allowed, because it can cause problems down the road. Upsize Nov 02: Asset-based loans tap value of firm’s inventory, A/R, by Chuck Mueller, Fidelity Bank • Upsize Nov 02: No bootstraps: Where to look for capital to grow. By Scott Riser, Virchow, Krause & Co. • Upsize Nov 03: Beware good times: owners need to adjust when sales pick up: John Kimball, Associated Bank • Upsize Jun 06: Other sources of capital abound: here are seven. By Steven Siem, Power Plan Financial • 51 ways to cut costs and increase cash flow • Cutting costs in business “Don’t ever, ever, ever miss your payroll taxes. The penalties are enormous.” QQUOTABLE — PHIL KRONLAGE, BPK&Z UPSIZE | 16 | ONLINE NOV08
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